FHA LENDERS LOWER HOME MORTGAGE QUALIFYING REQUIREMENTS

Are you trying to get into a home, but don't have much money saved for the down payment? Have you been turned down for financing because your credit score is too low? Take heart, two FHA lenders have lowered home mortgage qualifying requirements.

Two of the largest FHA-approved lenders, Wells Fargo and Quicken Home Loans have revised their credit and down payment requirements. They have revised their controversial "overlay" requirements on FICO scores (lender overlays are qualification requirements that can be more stringent than FHA's own requirements).

Both Wells Fargo and Quicken Loans confirmed last week that they will now lend to applicants with 580 FICOs and 3.5 percent down payments. This change will open the agency's financing to large numbers of buyers whose credit scores have reduced dramatically during the recession.

Wells' revised policy dips the FICO score cutoff line well below 580 --  way down to the subprime 500 -- but also sets stricter underwriting guidelines to weed out unqualified applicants. Home buyers with scores of 580 to 599 will need 5 percent down payments and will no longer be permitted to supplement their own cash with gifts. Borrowers with FICOs above 600 will qualify for 3.5 percent down payments, but will be allowed to use gift money.

Contributions from the seller to defray buyers' closing or loan origination costs will be limited to 3 percent. Debt-to-income ratios will also be tighten: 31% for monthly housing related expenses, and 43% for total household debt.

Wells Fargo is the largest originator of FHA-insured mortgages; Quicken ranks third, according to industry data. The Wells Fargo and Quicken model is a strategic approach to lowering home mortgage qualifying requirements and could serve as a blueprint for other large lenders to consider in the coming weeks.

It is however unclear if any other major companies may abandon their  620-640 FICO minimums, but there are industry hopes that many more will take a hard look and follow suit.

The idea is not to have habitually late paying customers getting FHA-insured mortgages to purchase houses,  but rather to provide home ownership opportunities to genuinely qualified buyers who simply have temporarily depressed credit scores.

If the mortgage industry as a whole adopts these guidelines in some form and FHA lenders truly decide to lower home mortgage qualifying requirements across the board, tens of thousands of consumers could be beneficiaries in the weeks ahead.  Contact you local mortgage or real estate professional to see how these changes can help you buy your dream home now.